The proposed legislation phases in a six percent sales tax on motor fuel at two percent each year for three years that will generate an additional $613 million in revenue to address Maryland’s urgent transportation infrastructure needs and support an estimated 7,500 jobs for Maryland families. The sales tax would be applied to the retail price of motor fuel minus any federal and state taxes. An average retail price of motor fuel will be calculated by the Comptroller’s Office every six months based on the average of the prior six months of actual prices of regular unleaded gasoline.

The Governor’s legislation includes a “braking mechanism” that will temporarily cease the phasing of the tax for consumers in the event of a dramatic spike in the price of gasoline. If the price of gasoline in year one were to increase by more than 15 percent over the prior year, the rate in year two would remain at 2 percent. This test will be calculated in each subsequent year until the full rate of 6 percent can be applied.

This legislation would also restore some level of transportation aid to local governments. However, not in the same manner as historically advocated by MACo. MACo has consistently advocated for full restoration of Highway User Revenues back to the historic 70% State/30% local share. Instead this proposal maintains the current 90% State/10% local share and establishes the Local Transportation Infrastructure Aid Account to allocate new revenues generated by the sales tax to local governments. According to Summary Document outlining the proposal:

The new revenue generated by the application of sales tax would be shared with the local governments on an 80% State /20% local basis.

The distribution of funds would be: Counties=70%; Municipalities=20%; and Baltimore City=10%.

As with the application of the sales tax, the revenue sharing would be implemented in three phases. At a 2% rate, local governments would receive 10% of the new revenue generated. The local share would increase to 15% at the 4% rate and 20% at the 6% rate.

When combined with Highway User Revenues, the revenue generated from the application of the sales tax will restore both municipalities and Baltimore City to approximately 70% of their 2008 funding levels and will restore the Counties to nearly half (42%) of their 2008 funding level.

[…] session drawing near and little support for applying the 6% sales tax to the price of gasoline as previously proposed, Governor O’Malley is again suggesting that the sales tax be raised by 1 cent with the […]